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The Securities and Exchange Commission continues to seriously explore the possibility of allowing U.S. companies to report their financial results using international accounting standards.

Speaking at a financial reporting conference in New York, SEC Chief Accountant Conrad Hewitt said the SEC’s legal department is currently looking into whether the Sarbanes-Oxley Act of 2002 permits the regulator to recognize non-U.S. accounting standards.

U.S. companies report using generally accepted accounting principles, or U.S. GAAP, which are largely set by the Financial Accounting Standards Board. The SEC currently requires foreign companies using International Financial Reporting Standards, or IFRS, to reconcile their reports to U.S. GAAP in order to list on U.S. exchanges.

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In recent years, FASB and the International Accounting Standards Board, which sets IFRS, have worked closely to eliminate major differences between the two standards, and Hewitt indicated that the SEC still plans to eliminate the reconciliation requirement.

“We are on track to eliminate reconciliation in 2009,” Hewitt said. That “has the potential to lower costs for foreign issuers,” he said, who currently “basically have to keep two sets of books.”

However, a number of recent panels, some sponsored by the SEC, have suggested that if foreign companies can be allowed to use only IFRS to list on U.S. exchanges, then U.S. firms should also have that option. “We are looking at the possibilities of [all] companies [using either] IFRS or GAAP,” Hewitt added, noting that this “may well mean [GAAP and IFRS] coexist in U.S. capital markets.”

However, the possibility of one day offering companies a choice of IFRS or GAAP would mean that the SEC would have to recognize the IASB as an authoritative body for setting accounting standards. That could cause conflict with the Sarbanes-Oxley Act. Although the act does not explicitly refer to FASB, it did establish a funding mechanism for it, and says the SEC can recognize only standards-setting bodies that use that funding mechanism. Under the act, publicly traded companies are assessed a fee to fund FASB. It is not clear what would happen to that funding if companies that list in the U.S. could report their financial results using standards set by IASB instead.

That issue might be moot if FASB and IASB are able to eliminate differences in international reporting. “It is clear to me that many see the ultimate endgame as a single standard,” said Hewitt, adding that the goal of ongoing convergence efforts is to create an “apple-to-apple comparison.”

That is not currently the case, however. Under European Union law, 2007 is the first year that many foreign firms listed on U.S. exchanges were required to begin using IFRS, with varied results. For example, DaimlerChrysler’s first report using IFRS increased the automaker’s tax earnings by $819 million to $5.2 billion, while earnings per share increased by 68 cents. Operating profit, or earnings before interest and taxes, dropped by $38 million to $7.5 billion under IFRS. The switch also reduced the loss suffered by the company’s Chrysler division — the only unit to show a loss — from $1.5 billion to $682 million. The company attributed most of the change to the way pension obligations are booked under IFRS. For example, retroactive pension-plan adjustments are immediately entered into the income statement under IFRS, whereas under U.S. GAAP the adjustments are distributed over the remaining service period.

Asked whether giving companies a choice of accounting standard might create an opportunity for forum shopping, Hewitt said he doubted that was likely, but joked with CFO.com that the choice “could create competition between the two standard setters.”

Hewitt acknowledged that allowing the two systems to operate side-by-side is “an ambitious project” and said the SEC wasn’t the only organization that would face challenges in acknowledging international accounting standards. “Will universities have mandatory international accounting courses?” he asked rhetorically. “Will CPA tests have questions about international accounting standards?”

In response to a question about variations of IFRS, Herz, long a champion of international convergence, acknowledged that there are French, German, and Chinese flavors of IFRS. Yet, he challenged the questioner’s comment that different legal systems around the world made uniform accounting standards difficult to achieve. “Everybody thinks they’re unique, but maybe they’re not so unique,” he said, suggesting that accounting standards based on principles rather than rules could help overcome different legal regimes.

Indeed, there are indications that the SEC itself is taking a strong interest in uniform application of international accounting standards. Last week, SEC Chairman Christopher Cox traveled to several countries in Europe to discuss coordination between the SEC and European securities regulators. In Brussels, he met with the heads of the Committee on European Securities Regulators to establish protocols for sharing information between the regulators, noting that the agreements brought the two organizations one step closer to “the ultimate goal of encouraging high-quality and consistent application of IFRS.”